The Morgan Stanley - Dean Witter Merger

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Case Details:

Case Code : BSTR209
Case Length : 19 Pages
Pages Period : 1997-2005
Organization : Morgan Stanley & Company; Dean Witter, Discover & Company
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Industry : Investment Banking and Financial Services

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Merger

The origin of the merger can be traced back to 1995, when Morgan Stanley played a major role in the spin-off of Dean Witter Discover from Sears Roebuck & Company. Initially, Morgan Stanley considered a joint venture but later thought about a merger.

However, the negotiations with Dean Witter made no headway. By the end of 1996, it was widely believed that NationsBank would be buying Boatmen's Bancshares and Citicorp was negotiating with American Express. These events pressured Morgan Stanley into seriously considering a merger with Dean Witter. In December 1996, Purcell invited Richard B. Fisher (Fisher), CEO of Morgan Stanley, and Mack, President of Morgan Stanley, for negotiations. After two months, the final deal emerged. Dean Witter was to acquire Morgan Stanley through an all stock deal, after which the shareholders of Morgan Stanley would own 45% of the combined entity. The ticker symbol would become MWD, a combination of Morgan Stanley's MS and Dean Witter's DWD...

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Post Merger Devolopments

Defying the analysis of industry experts, the merger delivered positive results during the first three to four years. When the revenues for 1998 were considered, Morgan Stanley Dean Witter ranked tenth among the major financial services companies in the US. The company was ranked sixth in profits and topped the list as far as profit as a percentage of shareholders'equity was considered (Refer to Table II for details of Morgan Stanley Vs Competitors).

In the third quarter of 1998, the fixed income trading operations of Morgan Stanley were integrated with that of Dean Witter. The Dean Witter traders were sent to Morgan Stanley and the traders from Morgan Stanley made their displeasure about working with Dean Witter obvious. At the same time, Morgan Stanley's underwriting and trading departments and Dean Witter's retail brokerage department were asked to work together. In the retail preferreds business, Morgan Stanley and Dean Witter had a share of 1% each in 1996. Retail preferreds were securities priced below US$ 25 per share, a segment which primarily catered to small investors...

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